Bill Barrett Corp. (BBG): West Tavaputs, Piceance, Circus key assets to watch - Goldman Sachs - August 08, 2007
What's changed
Bill Barrett reported adjusted EPS of $0.06, below our $0.19 and First Call consensus of $0.17. Operating cash flow was $55 million, below our $64 million estimate. Production was 165 MMcfe/d, below our estimate of 169 MMcfe/d. Management raised production guidance for the year.
Implications
Bill Barrett continues to grow production in the Piceance Basin (CO) and the West Tavaputs field (UT), the two core assets of the company's expanding development base. Expected further growth from these two areas is having a positive impact on Bill Barrett's relative valuation versus other unconventional gas companies. The West Tavaputs field in particular can continue to differentiate the company, especially if the company is successful in even deeper exploration expected next year and separately can show that the play extends to the west. With the rally in Bill Barrett shares, there are likely modest expectations for positive drilling results from the company's Circus exploration area (MT), and well results expected this quarter will likely be a driver of stock performance.
Valuation
Bill Barrett shares trade at 4.8x 2007 EV/debt-adjusted cash flow, which is one of the lower multiples of E&P stocks. We attribute this to the combination of the company's shorter reserve life as well as its greater focus on exploration, where capital investment is discounted versus spending on development. With a combination of exploration success and better-than-expected reserve bookings this year, the shares could outperform. We currently have a $35 12-month discounted cash flow based target price and rate the stock Neutral versus a Neutral coverage view.
Key risks
Commodity price volatility, drilling results, cost pressures and regulatory pronouncements are key risks. |
